What are the answers for thise financial ratio analysis for JetBlue case, acording to the following:

1) Current ratio(Liquidity)

2) Total debt

3) Debt-equity

3) Inventory turnover

4) Receivables turnover(activity)

5) Profit margin

6) ROA

6) ROE

Please see the attached reference

What kind of refernces do you want???? the attached file that i had attached is all the referrence that i have now.

CASES CASE 28 JETBLUE AIRWAYS CORPORATION: GETTING OVER THE BLUES"? To meet the challenges, new CEO Robin Hayes orches- In 2017 JetBlue faced challenges that included rising fuel prices, troubling technical disruptions, and declining qual trated various initiatives that the company planned to take ity of the flying experience. Since the beginning of 2016, through 2017. Those initiatives included wider fare options enhanced Mint services, cabin restyling, new lines of their earnings about 18 percent during the second quarter JetBlue credit cards, and partnerships with other airlines? The founding CEO of JetBlue, David Neeleman, had of 2016.' but the company experienced technical issues that caused booking problems and resulted in delays, as been ousted by the board of directors after a notorious event well as bad publicity. In order to cope with the likelihood when an ice storm severely disrupted the airline's opera- of a rise in future fuel prices, JetBlue undertook massive tions. In 2007, Dave Barger, an employee since the incep cost reductions by investing in cabin restyling, for instance, tion of JetBlue in 1998, became the second CEO of the adding more seats to Jet Blue's A320 airplanes. However, company. Ultimately Barger was pressured to step down the shrinking legroom that accompanied the cabin restylamid constantly depressed stock prices. In February 2015, ing was despised by passengers, which posed a problem for Robin Hayes took charge of the company as its third chief an airline that had once offered customers a captivating executive. Hayes was the executive vice president of British (as opposed to a captive) flying experience. Airways for the Americas before joining JetBlue in August 2008. Having worked for about 25 years and having extensive experience in the airline industry, Hayes was considered an *This case study was prepared by Professor Naga Lakshmi Damaraju of optimal choice to become the third chief executive of JetBlue. the Indian School of Business, Professor Alan B. Eisner at Pace University, In promoting Robin Hayes to be the airline's new CEO, Professor Gregory G. De at the University of Texas at Dallas, and graduate JetBlue's board signaled its readiness to focus on investor student Sand Nair of Pace University. The purpose of the case is to stimulate friendly changes. With news of his selection, the share price class discussion rather than to illustrate effective or ineffective handling of a business station. The authors thank Ms. Parul Agarwal, Indian School immediately soared by 5 percent. But JetBlue loyalists who of Business, for her research assistance and Professor Michael Ouff at the loved the company for its customers first policies were getting University of Texas at Dallas for his valuable comments on an earlier version of more and more uncomfortable (see Exhibit 1). Would JetBlue this case. Copyright 2017 Damarju, Eisner, and Dess. soar into clearer skies, or would it sink into the "bluesain! EXHIBIT 1 JetBlue's Stock Performance versus S&P 500 JBLU 30.00 Open 20.63 Close 20.82 25.00 Low 20.50 High 20.86 Vol 2.85M %Chg 335.56% 2082 15.00 10.09 5.00 Jan 713 Jan 6'14 Jan 5 '15 Jan 4'16 Jan 2017 C209 CAUFTLINE low-cost airlines created a very unprofitable environment A320s had 162 seats, compared to 132 seats in the Boeing for traditional networks. Since 2011 most of the traditional network, hub-and-spoke airlines have filled for bankruptcy to maintain and more fuel efficient. Since all of JetBlues or under one financial restructuring, mergers, or consolida- Lions with these restructurings, many of them have been able to significantly reduce labor costs, restructure dcbi. and generally in a more competitive cost structure. This has enabled the major airlines to provide innovative offer route networks. The gap between low-cost airlines and tradi tional network airlines has diminished drastically JetBlue: The Humble Beginnings and the Born in Sao Paulo, Brazil, and brought up in Salt Lake City based Morris Air, a charter operation, in 1984. Morris Air was closely modeled after Southwest Airlines, the legend ary discount airline. Neeleman considered Herb Kelleher, While following the Southwest model, Nocleman brought his own innovations into the business. He pioneered the use of at-home reservation agents, routing calls to agents homes to save money on office rent and infrastructure expense. He also developed the first electronic ticketing system in the airline industry. Impressed by Morris's low costs and high revenue, Southwest bought the company for $129 million in 1992. Neeleman became an executive vice president of The US airline industry consists of three primary seg. Great Rise Ines Major U.S. airlines, as defined by the Department David Neeleman, along with June Morris, launched Utah significantly, leading to a reduction in traffic and revenue achieve this objective, the company originally operated a ines similar to those of low cost airlines while still maintain constantly updated at headquarters. As a result, pilots in their alliances, frequenter programs, and expansive could quickly calculate the weight, balance, and takeoff per The U.S. Airline Industry sents: major airlines, regional airlines, and low-fare air Transportation, are those with annual revenues of over $1 billion. Most major airlines utilize the hub-and-spoke route system. In this system, the operations are concen trated in a limited number of hub cities, while other des Southwest's founder, his idol, inations are served by providing one-stop or connecting service through the hub. Scheduled flights serve most large cities within the United States and abroad and also serve numerous smaller cities. Regional airlines typically operate smaller aircraft on lower volume routes than do major airlines. They typically enter into relationships with major airlines and carry their passengers on the spoke-that is, between a hub or larger city and a smaller city. Unlike the low-fare Southwest. However, he could not adjust to Southwest's pace airlines, the regional airlines do not have an independent of doing things. By 1994, he was at odds with top executives route system. and he left after signing a five-year noncompete agreement. Deregulation of the U.S. airline industry in 1978 ush After the noncompete agreement with Southwest ered in competition in the previously protected industry. Airlines ended in 1999. Necleman launched his own airline. Several low-cost, low-fare operators entered the competi- He raised about $130 million of capital in two weeks. With tive landscape that Southwest had pioneered in 1971. The such strong support from venture capitalists, JetBlue began low-fare airlines operate from point to point with their as the highest-funded start-up airline in U.S. aviation history. own route systems. The target segment of low-fare airlines JetBlue commenced operations in August 2000, with John is fare conscious leisure and business travelers who might F. Kennedy International Airport (JFK) as its primary base otherwise use alternative forms of transportation or not of operations. In 2001, JetBlue extended its operations to the travel at all. Low-fare airlines have stimulated demand in West Coast with its base at Long Beach Municipal Airport, this segment and been successful in weaning business trav- which served the Los Angeles area. In 2002, the company elers from the major airlines. Southwest is the outstanding went public and was listed on NASDAQ as JBLU. JetBlue's example: however, Southwest has become a major airline, stock offering was one of the hottest IPOs of the year.' having crossed the $1 billion mark in 1990.6 JetBlue had been established with the goal of being a The main bases of competition in the airline industry leading low-fare passenger airtime that offered customers a are fare pricing, customer service, routes, flight schedules, differentiated product and high-quality customer service on types of aircraft, safety record and reputation, codesharing point-to-point routes. JetBlue had a geographically divers relationships, in-flight entertainment systems, and frequent fied flight schedule that included both short-haul and long- Nier programs. The sconomic downturn in the late 1990s haul routes. The mission of the company, according to and the terrorist attacks on the World Trade Center and Nocleman, was "to bring humanity back to air travel." To the Pentagon on September 11, 2001, severely affected the airline industry and changed the competitive relation: kets and large metropolitan areas that had high average fares, stimulate demand, the airline focused on underserved mar ships among carriers. The demand for air travel dropped JetBlue was committed to keeping its costs low. To Security concerns, security to increaseis able concerns singlotype aircraft fleet comprising Airbus A320 planerne Increased. Lower fares and the increased capacity of the opposed to the more popular but costly Boeing 737. The 737. According to JetBlue, the A320 was less expensive planes were new, the maintenance costs were also lower. In addition, the single type of aircraft kept training costs low and increased personnel utilization. JetBlue was the first 10 introduce the "paperless cockpit." in which pilots, equipped with laptops, had ready access to fight manuals that were formance of the aircraft instead of having to download and print the manuals to make the calculations. The paperless CASE 28 - JETBLUE AWAY 200 was everywhere. For example, there were no paper tickets introduced Embraer jets to its fleet 16 cockpit ensured faster takeoffs by reducing paperwork and give the airline a new boost. In July 2007, it became the higher aircraft utilization. No meals were served on the messages from wireless handheld devices, a technology planes, and pilots even had to be ready. If need be, to do developed through its Live TV LLC subsidiary. Later, the airline's choice of less congested airports. Innovation Southwest. Virgin America, and Skybus Airlines. It also cleanup work on the plane to minimize the time the aircraft was on the ground. Turnaround time was also reduced by thus helped the airline achieve quicker turnarounds and first US carrier to let passengers send free email and text in September 2007. it expanded to smaller cities that did not have sufficient demand for the larger planes flown by In 2007, JetBlue had its first full-year profit in three years as an increase in traffic and operational improvements to lose and no mileage statements to mail to frequent fliers. With friendly, customer service-oriented employees, new aircraf: roomy leather seats wathe 196 Chelse helped compensate for skyrocketing fuel costs. However, free LiveTV, 100 channels of free XM satellite radio, and movie channel offerings from FOXInflight: and more leg fuel prices. JetBlue's profits tanked again in 2008, and the Toom (one row of seats was removed to create additional company reported a net loss of 585 million." Nevertheless, space). JetBlue promised its customers a distinctive flying the company returned to profitability in 2009. In April experience, the "JetBlue experience. With virtually no 2010. JetBlue successfully completed the International Air incidents of passengers being denied boarding high com Transport Association's (IATA's) Operational Safety Audit pletion factors (99.6 percent as compared to 98.3 percent (IOSA) and achieved IOSA registration, meeting the same at other major airlines): the lowest incidence of delayed. highest industry benchmarks as other world-class airlines." mishandled, or lost bags, and the third-lowest number of Dave Barger was known for "being overly concerned customer complaints, the company was indeed setting stan with customer service and comfort. During Barger's dards for low-cost operations in the industry. JetBlue was tenure, JetBlue earned tributes for its customer service. voted the best domestic airline in the Conde Nast Therweler's However, its low-fare business model was being threatened Readers' Choice Awards for five consecutive years. Readers as its costs kept going up. In April 2014, its pilots, long non- of Threl + Leisure magazine also rated it the World's union, voted to join the Air Line Pilots Association. In the Best Domestic Airline in 2006. In addition, it earned the wintertime the airline was again racked by weather-driven Passenger Service Award from Air Transport World flight cancelations. JetBlue's stock under Barger's leadership lagged behind big legacy carriers Delta Air Lines and fel- Hitting Bumpy Air low discounter Southwest Airlines. The shares were up just Nevertheless, high fuel prices, the competitive pricing environ 9 percent since Barger became CEO." In the same period, ment, and other cost increases made it increasingly difficult to Southwest's shares gained more than 140 percent and the keep JetBlue growing and profitable. The airline suffered its overall Bloomberg U.S. Airline index gained 49 percent. 22 first ever losses after its IPO in 2005. It posted net losses of $20 million and Si million for 2005 and 2006, respectively, Current Leadership The ice storm on Valentine's Day 2007 that cost The new CEO, Robin Hayes, unveiled a new pricing model Neeleman his job was a nightmare in JetBlue's hitherto that included four different pricing categories (see Exhibit 2). high-flying history for more than one reason. Not only did Under the new fare structure, passengers were able to choose the event destroy JetBlue's reputation for customer friendli which features they did or didn't want included in the ticket ness, but it also exposed critical weaknesses in the systems price. At the low end of the pricing spectrum, tickets did not that had kept the airline's operations going. The airline's reputation hit rock bottom. To limit the damage. JetBlue include a checked bag. Passengers who paid higher fares were announced huge compensations to customers-refunds and entitled to checked bags (one bag at Blue Plus level, two at future flights--which were to cost the airline about $30 mil- the Blue Flex and Mint levels) and got bonus loyalty points. lion. Neeleman quickly followed up with a new Customer Bill option offered extra legroom (38 inches of pitch), expedited At the high end of the pricing. the "Even More" seating of Rights. The Customer Bill of Rights outlined self-imposed security clearance, and priority access to overhead bin space. penalties for JetBlue and major rewards for its passengers if With this fare structure, seats were subject to variable pricing the airline experienced operational problems and could not not only by flight but also by their specific position in the adjust to weather related cancelations within a "reasonable" aircraft. Hayes said that the airline was committed to deliver amount of time. All these announcements and even a publicing "the best travel experience for our customers.... JetBlue's apology could not restore things to normalcy. Neeleman was core mission to Inspire Humanity and its differentiated model pushed out as CEO on May 10, 2007. Dave Barger, the prest of serving underserved customers remain unchanged.-23 dent, assumed the position of chief executive officer, The substantial challenge regarding a trade-off between travel experience and profit margins remained. The question Restoring JetBlue's Luster? was, would JetBlue be able to hold onto its core mission and Under the second CEO, Dave Barger, JetBlue added sev- still be able to make its stakeholders happy? Investors won eral new services and embarked on capacity expansion to dered if JetBlue really had a strong and clear strategic position C210 CASE 28: JETBLUE AIRWAYS CORPORATION: GETTING OVER THE BLUES? EXHIBIT 2 JetBlue Fare Options BLUE FLEX MINT BLUE BLUE PLUS 2 2 0 3 3 CHECKED BAGS INCLUDED CARRY ON (1 BAG PERSONAL ITEM) INCLUDED BASE TRUEBLUE POINTS (PER DOLLAR TRUEBLUE ONLINE BOOKING BONUS PER DOLLAR 3 3 5 $75 PARIS UP TO 7 FARES UP TO $100 FARES UP TO $100 FARES UP 10 $10 $149 $150 FARES $150 $150 FARES $1501 375 DAYS FROM BEINTURE $150 WITH GODOM BETUL CANCELLATIONS OR CHANGES PLUS ANY FARE DIFFERENCE $50 $50 $50 $10/$15 $10/$15 NA $3-$12 $3-$12 $3-$12 SAME DAY CHANGES IVEN MORE" SPEED (EXPENDED SECURITY MOST LEGROOM IN COACH FREE SNACKS & SOFT DRINKS BATUPATUP CAFE FYRIGH SPEED INTERNET DIRECTIV SIRIUSXM RADIO MOVIES1 . NIA NA LIEFLAT SEAT, EARLY BOARDING ARTISANAL DINING, DEDICATED CHECK-IN & MORE! Sendete official website and coherent business model to support it. Were too many agreement with Virgin Atlantic. Virgin Atlantic and Virgin complexities being introduced into its simple model of success! America have some shared ownership with Virgin Group owning 25 percent of Virgin America. Virgin America is The "Interline" Model a major competitor of JetBlue. In March 2013, JetBlue Unlike many other carriers around the world, JetBlue chose entered its 22nd code-share agreement with Qatar Airways to stay independent. The carrier relied on signing a series of which followed its partnerships with the UAE-based Emirates interline" agreements instead of joining an airline alliance. airline, Korean Air, Air China, and the Indian carrier Jet While the interline agreements do not fit into a strict hub Airways, allowing JetBlue to expand its reach far beyond and spoke model, they nearly amount to the same thing, the Americas, into India, China, the Middle East, and other allowing JetBlue passengers in New York, Boston, and San parts of Asia." Etihad Airways and El Al Israel joined this Juan to connect to destinations around the world. list in January 2014 and November 2014, respectively. After In February 2007, under the leadership of Barger. replacing the second CEO, Hayes continued expanding the JetBlue had announced its first code-share agreement with partnership and codeshare agreements throughout 2016. Cape Air. Under this agreement. JetBlue passengers from JetBlue signed codeshare agreements with Seaborne Airlines Boston's Logan Airport were carried to Cape Air's destina- and Azul Brazilian Airlines, and expanded the existing code- tions throughout Cape Cod and the surrounding islands, share agreements with many airlines including Hawaiian and customers were able to purchase seats on both airlines Airlines, Cape Air, and Icelandair Airlines, among others. under one reservation. While Lufthansa's January 2008 In response to growing competition, JetBlue's expansion of acquisition of a minority equity stake (42.6 million shares codeshare agreements marked a departure from the compa of common stock) in JetBlue did not automatically lead ny's initial strategy to stay independent to any code-share agreements, Lufthansa expected to have operational cooperation with JetBlue. More Goodies for Customers JetBlue continued on the path of signing more inter Over the years, JetBlue has constantly tried to maintain line agreements. In March 2011, it announced an interline its customer first attitude. It introduced its "Go Places EXHIBIT 3 Operating Margins of Major U.S. Airlines Airline Operating Margin, 2016 23.17% Southwest Airlines 19.65 Jere Delta Air Lines 18.39 American Airlines 14.95 United Continental 14.10 application on Facebook, which rewarded customers with TrueBlue points and special discounts so they could earn free trips faster. The "Even More" suite of products and services including early boarding, carly access, expedited security expe rience, and extra legroom-has been an interesting innovation JetBlue has added more benefits for its frequent fiers through its "TrueBlue Mosaic" loyalty program. The services include a free second checked bag. a dedicated 24-hour customer ser vice line, and bonus points, among many other offers. JetBlue became the first Federal Aviation Administration- certified carrier in the U.S. to utilize the new satellite-based Special Required Navigation Performance Authorization Required (RNP AR) approaches at its home base at New York's JFK airport. These unique procedures have resulted in stabilized approach paths, shorter flight times, and reduced noise levels and greenhouse gas emissions, and they have increased fuel savings by as much as 18 gallons per flight. In 2017, with an operating margin of 19.65 percent. JetBlue was doing better than in previous years as compared to its close competitors (see Exhibit 3). Nevertheless, in October 2013. amid cost cutting. JetBlue had announced a fleet modernization program that included deferral of 24 Embraer aircraft from 2014-2018 to 2020-2022 so that capital expenditures could be reduced over the near term (see Exhibits 4 and 5). It also converted 18 orders with Airbus from A320 to A321 aircraft. It said its future focus would be on adding aircraft with more fuel- efficient engines. JetBlue also shrank legroom, adding 15 more seats to its Airbus A320 planes." agreements, new codesharing agreements, various strate- gic partnerships with other commercial airlines, launch of JetBlue credit cards, and creation of JetBlue Technology Ventures LLC to invest in emerging technologies related to the travel and hospitality industry. However, the company has also faced challenges, including technical problems when customers were unable to book or modify their exist- ing reservations amid an outage in computer systems. In May 2016, eight passengers were injured amid heavy tur- bulence on a JetBlue flight from San Juan to Orlando In August 2016, heavy turbulence on another JetBlue flight from Boston to Sacramento put 24 people in the hospital, including two crew members and 22 passengers." Numerous factors will determine the future of JetBlue under Hayes's leadership. Will the company be able to maintain high operating margins if the fuel price starts to go up after the oil supply glut evaporates? At the same time will the company be able to provide its customers a great travel experience by keeping low fares? Reinventing JetBlue Under Hayes's leadership, JetBlue has gone through many changes to reinvent the company, including new interline EXHIBIT 4 Income Statement of JetBlue Fiscal year is January-December All values USD millions. 2016 2014 2013 2012 4.982 6.632 2015 6.416 10.30% 5.817 Sales Revenue Sales Growth 5,441 3.37% 6,91% 9.215 5.070 4,831 5,048 4,789 4.412 4,486 4,728 4,677 393 4,499 Cost of Goods Sold (COGS) Incl. D&A COGS excluding DLA Depreciation & Amortization Expense Depreciation Amortization of Intangibles 4,154 345 290 258 288 320 263 337 56 258 230 57 57 32 28 COGS Growth 4.95% 5.41% -4.30% 1,585 8.54% 1,562 Gross Income Gross Income Growth 769 652 -1.45 106.11% 570 17.94% 14.39% C212 CASE 28 : JETBLUE AIRWAYS CORPORATION: GETTING OVER THE BLUES 2016 2015 2013 259 2012 Fiscal year is January-December All values USD millions SG&A Expense Other SGRA SGA Growth 223 264 264 14.29% 2014 231 231 3.59% 259 -1.89% 1,303 204 223 204 9.315 EBIT 1,321 538 429 366 (1) (13) 16 11 1 16 (118) 234 1 104 119 133 157 -12.61% -10.53% -5.00% 140 -10.83% 153 112 127 147 165 8 8 14 13 8 Unusual Expense Non Operating Income/Expense Interest Expense Interest Expense Growth Gross Interest Expense Interest Capitalized Pretax Income Pretax Income Growth Income Tax Income Tax - Current Domestic Income Tax - Current Foreign Income Tax-Deferred Domestic 1,216 1,097 279 209 623 123.30% 10.85% 76.08% 33.49% 457 420 222 111 81 155 43 10 4 5 32 270 377 212 107 76 677 759 401 168 128 Consolidated Net Income 677 401 168 128 759 Net Income 12.11% 68,83% 138.69% 31.25% 677 401 168 128 759 Net Income Growth Net Income After Extraordinaries Net Income Available to Common 128 677 168 401 759 2.22 0.40 1.98 0.52 1.19 66.39% 12.12% 128.85% 30.62% 283 282 327 295 315 EPS (Basic) EPS (Basic Growth Bask Shares Outstanding EPS (Diluted EPS (Diluted) Growth Diluted Shares Outstanding 0.52 0.40 2.22 1.98 1.19 29.46% 12.60% 130.59% 66.19% 343 344 342 343 345 719 624 EBITDA 1,696 1,666 858 EBITDA Growth 1.80% 94.17% 15.22% 19.33% 429 366 EBIT 1,303 1,321 538 Source: JetBlue Annual Report 2016, EXHIBIT 5 Balance Sheet of JetBlue 2012 2013 2014 731 2015 627 2016 708 182 876 225 971 433 341 318 549 402 367 558 538 -14.23% 10.84% 23.73% 12.92% 9.03% 8.53% 10.34% 10.24% 10.12% 129 106 Fiscal year is January-December. All values USD millions. Cash & Short-Term Investments Cash Only Short-Term Investments Cash & Short-Term Investments Growth Cash & ST Investments / Total Assets Total Accounts Receivable Accounts Receivables, Net Accounts Receivables, Gross Bad Debt Doubtful Accounts Acounts Receivable Growth Accounts Receivable Turnover 136 172 136 129 106 136 172 136 135 113 142 177 142 16) (5) 16) 21.70% 0.00% (6) 5.43% 42.77 26.47% 38.56 42.18 47.00 47.18 48 36 44 46 Inventories 47 48 46 Raw Materials 252 227 377 317 310 126 119 135 172 Other Current Assets Prepaid Expenses Miscellaneous Current Assets Total Current Assets 377 175 108 145 126 1,567 1,373 1.200 1,056 1,100 7.271 6,652 6,072 5,656 5,343 9,624 8.679 7,817 6,652 Net Property. Plant & Equipment Property. Plant & Equipment - Gross Machinery & Equipment Construction in Progress Other Property. Plant & Equipment 7.208 5.959 8,091 7.250 6,440 5,506 561 561 561 561 561 972 868 816 688 585 2.353 2.027 1,745 1,552 1,309 1,823 1,573 1,354 1.185 995 Accumulated Depreciation Machinery & Equipment Construction in Progress Other Property, Plant & Equipment Total Investments and Advances 185 161 139 116 93 345 293 252 251 221 152 112 121 171 187 152 112 121 171 187 97 93 73 Other Long-Term Investments Intangible Assets Other Assets Tangible Other Assets 70 129 400 430 373 397 400 311 430 373 397 Total Assets 9,487 311 8,660 7.839 7,350 Assets - Total - Growth 9.55% 10.47% 7,070 6,65% 3.96% Fiscal year is January-December All values USD millions. 2016 2015 2013 189 2014 265 448 2012 394 189 448 469 469 265 394 242 205 180 ST Debt & Current Portion LT Debt Current Portion of Long-Term Debt Accounts Payable Accounts Payable Growth Other Current Liabilities Accrued Payroll Miscellaneous Current Liabilities 18.05% 846 -1.44% 1.622 208 15,56% 1,463 203 1,792 -78.72% 1.225 368 342 302 171 172 1,320 1,260 1,054 1,450 2,223 196 2,275 1,936 1,874 1,608 Total Current Liabilities Current Ratio 0.70 0.60 0.62 0.68 0.56 0.54 Quick Ratio 0.68 0.58 0.60 0.66 0.45 0.39 Cash Ratio 0.37 0.33 0.44 1,652 1,867 2,455 2,590 2.457 1,528 1,727 2,300 2.457 2.493 2,493 1,528 1,727 2,300 2,457 Long-Term Debt Long-Term Debt excl. Capitalized Leases Non-Convertible Debt Capitalized Lease Obligations Deferred Taxes Deferred Taxes - Credit Other Liabilities 124 140 155 97 1,509 1.218 832 605 481 1,509 1.218 832 605 481 636 90 90 87 147 Other Liabilities (excl. Deferred Income) 90 90 87 147 636 Total Liabilities 5,474 5,450 5,216 5.182 5,310 67.74% Total Liabilities/Total Assets 57.70% 62.93% 70.97% 73.30 4,013 3.210 2,529 2,134 1.888 4 4 4 3 3 2,050 1,896 1,711 1,573 1,495 2.446 1,679 1,002 601 433 Common Equity (Totan Common Stock Par/Carry Value Additional Paid-In Capital/Capital Surplus Retained Earnings Other Appropriated Reserves Treasury Stock Common Equity Total Assets Total Shareholders' Equity Total Shareholders' Equity / Total Assets 13 (63) 18 (3) (366) (500) (125) (43) (35 42.30% 37.07% 32.26% 26.70 29.03% 2,134 4,013 3.210 2,529 1,885 42.30% 37.07% 32.26% 29.03% 26.7C Total Equity 4,013 3,210 2,529 2,134 7,350 1,888 7,070 Labtes & Shareholders' Equity 9,487 8,660 7.839 Report 2016 CASES CASE 28 JETBLUE AIRWAYS CORPORATION: GETTING OVER THE BLUES"? To meet the challenges, new CEO Robin Hayes orches- In 2017 JetBlue faced challenges that included rising fuel prices, troubling technical disruptions, and declining qual trated various initiatives that the company planned to take ity of the flying experience. Since the beginning of 2016, through 2017. Those initiatives included wider fare options enhanced Mint services, cabin restyling, new lines of their earnings about 18 percent during the second quarter JetBlue credit cards, and partnerships with other airlines? The founding CEO of JetBlue, David Neeleman, had of 2016.' but the company experienced technical issues that caused booking problems and resulted in delays, as been ousted by the board of directors after a notorious event well as bad publicity. In order to cope with the likelihood when an ice storm severely disrupted the airline's opera- of a rise in future fuel prices, JetBlue undertook massive tions. In 2007, Dave Barger, an employee since the incep cost reductions by investing in cabin restyling, for instance, tion of JetBlue in 1998, became the second CEO of the adding more seats to Jet Blue's A320 airplanes. However, company. Ultimately Barger was pressured to step down the shrinking legroom that accompanied the cabin restylamid constantly depressed stock prices. In February 2015, ing was despised by passengers, which posed a problem for Robin Hayes took charge of the company as its third chief an airline that had once offered customers a captivating executive. Hayes was the executive vice president of British (as opposed to a captive) flying experience. Airways for the Americas before joining JetBlue in August 2008. Having worked for about 25 years and having extensive experience in the airline industry, Hayes was considered an *This case study was prepared by Professor Naga Lakshmi Damaraju of optimal choice to become the third chief executive of JetBlue. the Indian School of Business, Professor Alan B. Eisner at Pace University, In promoting Robin Hayes to be the airline's new CEO, Professor Gregory G. De at the University of Texas at Dallas, and graduate JetBlue's board signaled its readiness to focus on investor student Sand Nair of Pace University. The purpose of the case is to stimulate friendly changes. With news of his selection, the share price class discussion rather than to illustrate effective or ineffective handling of a business station. The authors thank Ms. Parul Agarwal, Indian School immediately soared by 5 percent. But JetBlue loyalists who of Business, for her research assistance and Professor Michael Ouff at the loved the company for its customers first policies were getting University of Texas at Dallas for his valuable comments on an earlier version of more and more uncomfortable (see Exhibit 1). Would JetBlue this case. Copyright 2017 Damarju, Eisner, and Dess. soar into clearer skies, or would it sink into the "bluesain! EXHIBIT 1 JetBlue's Stock Performance versus S&P 500 JBLU 30.00 Open 20.63 Close 20.82 25.00 Low 20.50 High 20.86 Vol 2.85M %Chg 335.56% 2082 15.00 10.09 5.00 Jan 713 Jan 6'14 Jan 5 '15 Jan 4'16 Jan 2017 C209 CAUFTLINE low-cost airlines created a very unprofitable environment A320s had 162 seats, compared to 132 seats in the Boeing for traditional networks. Since 2011 most of the traditional network, hub-and-spoke airlines have filled for bankruptcy to maintain and more fuel efficient. Since all of JetBlues or under one financial restructuring, mergers, or consolida- Lions with these restructurings, many of them have been able to significantly reduce labor costs, restructure dcbi. and generally in a more competitive cost structure. This has enabled the major airlines to provide innovative offer route networks. The gap between low-cost airlines and tradi tional network airlines has diminished drastically JetBlue: The Humble Beginnings and the Born in Sao Paulo, Brazil, and brought up in Salt Lake City based Morris Air, a charter operation, in 1984. Morris Air was closely modeled after Southwest Airlines, the legend ary discount airline. Neeleman considered Herb Kelleher, While following the Southwest model, Nocleman brought his own innovations into the business. He pioneered the use of at-home reservation agents, routing calls to agents homes to save money on office rent and infrastructure expense. He also developed the first electronic ticketing system in the airline industry. Impressed by Morris's low costs and high revenue, Southwest bought the company for $129 million in 1992. Neeleman became an executive vice president of The US airline industry consists of three primary seg. Great Rise Ines Major U.S. airlines, as defined by the Department David Neeleman, along with June Morris, launched Utah significantly, leading to a reduction in traffic and revenue achieve this objective, the company originally operated a ines similar to those of low cost airlines while still maintain constantly updated at headquarters. As a result, pilots in their alliances, frequenter programs, and expansive could quickly calculate the weight, balance, and takeoff per The U.S. Airline Industry sents: major airlines, regional airlines, and low-fare air Transportation, are those with annual revenues of over $1 billion. Most major airlines utilize the hub-and-spoke route system. In this system, the operations are concen trated in a limited number of hub cities, while other des Southwest's founder, his idol, inations are served by providing one-stop or connecting service through the hub. Scheduled flights serve most large cities within the United States and abroad and also serve numerous smaller cities. Regional airlines typically operate smaller aircraft on lower volume routes than do major airlines. They typically enter into relationships with major airlines and carry their passengers on the spoke-that is, between a hub or larger city and a smaller city. Unlike the low-fare Southwest. However, he could not adjust to Southwest's pace airlines, the regional airlines do not have an independent of doing things. By 1994, he was at odds with top executives route system. and he left after signing a five-year noncompete agreement. Deregulation of the U.S. airline industry in 1978 ush After the noncompete agreement with Southwest ered in competition in the previously protected industry. Airlines ended in 1999. Necleman launched his own airline. Several low-cost, low-fare operators entered the competi- He raised about $130 million of capital in two weeks. With tive landscape that Southwest had pioneered in 1971. The such strong support from venture capitalists, JetBlue began low-fare airlines operate from point to point with their as the highest-funded start-up airline in U.S. aviation history. own route systems. The target segment of low-fare airlines JetBlue commenced operations in August 2000, with John is fare conscious leisure and business travelers who might F. Kennedy International Airport (JFK) as its primary base otherwise use alternative forms of transportation or not of operations. In 2001, JetBlue extended its operations to the travel at all. Low-fare airlines have stimulated demand in West Coast with its base at Long Beach Municipal Airport, this segment and been successful in weaning business trav- which served the Los Angeles area. In 2002, the company elers from the major airlines. Southwest is the outstanding went public and was listed on NASDAQ as JBLU. JetBlue's example: however, Southwest has become a major airline, stock offering was one of the hottest IPOs of the year.' having crossed the $1 billion mark in 1990.6 JetBlue had been established with the goal of being a The main bases of competition in the airline industry leading low-fare passenger airtime that offered customers a are fare pricing, customer service, routes, flight schedules, differentiated product and high-quality customer service on types of aircraft, safety record and reputation, codesharing point-to-point routes. JetBlue had a geographically divers relationships, in-flight entertainment systems, and frequent fied flight schedule that included both short-haul and long- Nier programs. The sconomic downturn in the late 1990s haul routes. The mission of the company, according to and the terrorist attacks on the World Trade Center and Nocleman, was "to bring humanity back to air travel." To the Pentagon on September 11, 2001, severely affected the airline industry and changed the competitive relation: kets and large metropolitan areas that had high average fares, stimulate demand, the airline focused on underserved mar ships among carriers. The demand for air travel dropped JetBlue was committed to keeping its costs low. To Security concerns, security to increaseis able concerns singlotype aircraft fleet comprising Airbus A320 planerne Increased. Lower fares and the increased capacity of the opposed to the more popular but costly Boeing 737. The 737. According to JetBlue, the A320 was less expensive planes were new, the maintenance costs were also lower. In addition, the single type of aircraft kept training costs low and increased personnel utilization. JetBlue was the first 10 introduce the "paperless cockpit." in which pilots, equipped with laptops, had ready access to fight manuals that were formance of the aircraft instead of having to download and print the manuals to make the calculations. The paperless CASE 28 - JETBLUE AWAY 200 was everywhere. For example, there were no paper tickets introduced Embraer jets to its fleet 16 cockpit ensured faster takeoffs by reducing paperwork and give the airline a new boost. In July 2007, it became the higher aircraft utilization. No meals were served on the messages from wireless handheld devices, a technology planes, and pilots even had to be ready. If need be, to do developed through its Live TV LLC subsidiary. Later, the airline's choice of less congested airports. Innovation Southwest. Virgin America, and Skybus Airlines. It also cleanup work on the plane to minimize the time the aircraft was on the ground. Turnaround time was also reduced by thus helped the airline achieve quicker turnarounds and first US carrier to let passengers send free email and text in September 2007. it expanded to smaller cities that did not have sufficient demand for the larger planes flown by In 2007, JetBlue had its first full-year profit in three years as an increase in traffic and operational improvements to lose and no mileage statements to mail to frequent fliers. With friendly, customer service-oriented employees, new aircraf: roomy leather seats wathe 196 Chelse helped compensate for skyrocketing fuel costs. However, free LiveTV, 100 channels of free XM satellite radio, and movie channel offerings from FOXInflight: and more leg fuel prices. JetBlue's profits tanked again in 2008, and the Toom (one row of seats was removed to create additional company reported a net loss of 585 million." Nevertheless, space). JetBlue promised its customers a distinctive flying the company returned to profitability in 2009. In April experience, the "JetBlue experience. With virtually no 2010. JetBlue successfully completed the International Air incidents of passengers being denied boarding high com Transport Association's (IATA's) Operational Safety Audit pletion factors (99.6 percent as compared to 98.3 percent (IOSA) and achieved IOSA registration, meeting the same at other major airlines): the lowest incidence of delayed. highest industry benchmarks as other world-class airlines." mishandled, or lost bags, and the third-lowest number of Dave Barger was known for "being overly concerned customer complaints, the company was indeed setting stan with customer service and comfort. During Barger's dards for low-cost operations in the industry. JetBlue was tenure, JetBlue earned tributes for its customer service. voted the best domestic airline in the Conde Nast Therweler's However, its low-fare business model was being threatened Readers' Choice Awards for five consecutive years. Readers as its costs kept going up. In April 2014, its pilots, long non- of Threl + Leisure magazine also rated it the World's union, voted to join the Air Line Pilots Association. In the Best Domestic Airline in 2006. In addition, it earned the wintertime the airline was again racked by weather-driven Passenger Service Award from Air Transport World flight cancelations. JetBlue's stock under Barger's leadership lagged behind big legacy carriers Delta Air Lines and fel- Hitting Bumpy Air low discounter Southwest Airlines. The shares were up just Nevertheless, high fuel prices, the competitive pricing environ 9 percent since Barger became CEO." In the same period, ment, and other cost increases made it increasingly difficult to Southwest's shares gained more than 140 percent and the keep JetBlue growing and profitable. The airline suffered its overall Bloomberg U.S. Airline index gained 49 percent. 22 first ever losses after its IPO in 2005. It posted net losses of $20 million and Si million for 2005 and 2006, respectively, Current Leadership The ice storm on Valentine's Day 2007 that cost The new CEO, Robin Hayes, unveiled a new pricing model Neeleman his job was a nightmare in JetBlue's hitherto that included four different pricing categories (see Exhibit 2). high-flying history for more than one reason. Not only did Under the new fare structure, passengers were able to choose the event destroy JetBlue's reputation for customer friendli which features they did or didn't want included in the ticket ness, but it also exposed critical weaknesses in the systems price. At the low end of the pricing spectrum, tickets did not that had kept the airline's operations going. The airline's reputation hit rock bottom. To limit the damage. JetBlue include a checked bag. Passengers who paid higher fares were announced huge compensations to customers-refunds and entitled to checked bags (one bag at Blue Plus level, two at future flights--which were to cost the airline about $30 mil- the Blue Flex and Mint levels) and got bonus loyalty points. lion. Neeleman quickly followed up with a new Customer Bill option offered extra legroom (38 inches of pitch), expedited At the high end of the pricing. the "Even More" seating of Rights. The Customer Bill of Rights outlined self-imposed security clearance, and priority access to overhead bin space. penalties for JetBlue and major rewards for its passengers if With this fare structure, seats were subject to variable pricing the airline experienced operational problems and could not not only by flight but also by their specific position in the adjust to weather related cancelations within a "reasonable" aircraft. Hayes said that the airline was committed to deliver amount of time. All these announcements and even a publicing "the best travel experience for our customers.... JetBlue's apology could not restore things to normalcy. Neeleman was core mission to Inspire Humanity and its differentiated model pushed out as CEO on May 10, 2007. Dave Barger, the prest of serving underserved customers remain unchanged.-23 dent, assumed the position of chief executive officer, The substantial challenge regarding a trade-off between travel experience and profit margins remained. The question Restoring JetBlue's Luster? was, would JetBlue be able to hold onto its core mission and Under the second CEO, Dave Barger, JetBlue added sev- still be able to make its stakeholders happy? Investors won eral new services and embarked on capacity expansion to dered if JetBlue really had a strong and clear strategic position C210 CASE 28: JETBLUE AIRWAYS CORPORATION: GETTING OVER THE BLUES? EXHIBIT 2 JetBlue Fare Options BLUE FLEX MINT BLUE BLUE PLUS 2 2 0 3 3 CHECKED BAGS INCLUDED CARRY ON (1 BAG PERSONAL ITEM) INCLUDED BASE TRUEBLUE POINTS (PER DOLLAR TRUEBLUE ONLINE BOOKING BONUS PER DOLLAR 3 3 5 $75 PARIS UP TO 7 FARES UP TO $100 FARES UP TO $100 FARES UP 10 $10 $149 $150 FARES $150 $150 FARES $1501 375 DAYS FROM BEINTURE $150 WITH GODOM BETUL CANCELLATIONS OR CHANGES PLUS ANY FARE DIFFERENCE $50 $50 $50 $10/$15 $10/$15 NA $3-$12 $3-$12 $3-$12 SAME DAY CHANGES IVEN MORE" SPEED (EXPENDED SECURITY MOST LEGROOM IN COACH FREE SNACKS & SOFT DRINKS BATUPATUP CAFE FYRIGH SPEED INTERNET DIRECTIV SIRIUSXM RADIO MOVIES1 . NIA NA LIEFLAT SEAT, EARLY BOARDING ARTISANAL DINING, DEDICATED CHECK-IN & MORE! Sendete official website and coherent business model to support it. Were too many agreement with Virgin Atlantic. Virgin Atlantic and Virgin complexities being introduced into its simple model of success! America have some shared ownership with Virgin Group owning 25 percent of Virgin America. Virgin America is The "Interline" Model a major competitor of JetBlue. In March 2013, JetBlue Unlike many other carriers around the world, JetBlue chose entered its 22nd code-share agreement with Qatar Airways to stay independent. The carrier relied on signing a series of which followed its partnerships with the UAE-based Emirates interline" agreements instead of joining an airline alliance. airline, Korean Air, Air China, and the Indian carrier Jet While the interline agreements do not fit into a strict hub Airways, allowing JetBlue to expand its reach far beyond and spoke model, they nearly amount to the same thing, the Americas, into India, China, the Middle East, and other allowing JetBlue passengers in New York, Boston, and San parts of Asia." Etihad Airways and El Al Israel joined this Juan to connect to destinations around the world. list in January 2014 and November 2014, respectively. After In February 2007, under the leadership of Barger. replacing the second CEO, Hayes continued expanding the JetBlue had announced its first code-share agreement with partnership and codeshare agreements throughout 2016. Cape Air. Under this agreement. JetBlue passengers from JetBlue signed codeshare agreements with Seaborne Airlines Boston's Logan Airport were carried to Cape Air's destina- and Azul Brazilian Airlines, and expanded the existing code- tions throughout Cape Cod and the surrounding islands, share agreements with many airlines including Hawaiian and customers were able to purchase seats on both airlines Airlines, Cape Air, and Icelandair Airlines, among others. under one reservation. While Lufthansa's January 2008 In response to growing competition, JetBlue's expansion of acquisition of a minority equity stake (42.6 million shares codeshare agreements marked a departure from the compa of common stock) in JetBlue did not automatically lead ny's initial strategy to stay independent to any code-share agreements, Lufthansa expected to have operational cooperation with JetBlue. More Goodies for Customers JetBlue continued on the path of signing more inter Over the years, JetBlue has constantly tried to maintain line agreements. In March 2011, it announced an interline its customer first attitude. It introduced its "Go Places 2016 2015 2013 259 2012 Fiscal year is January-December All values USD millions SG&A Expense Other SGRA SGA Growth 223 264 264 14.29% 2014 231 231 3.59% 259 -1.89% 1,303 204 223 204 9.315 EBIT 1,321 538 429 366 (1) (13) 16 11 1 16 (118) 234 1 104 119 133 157 -12.61% -10.53% -5.00% 140 -10.83% 153 112 127 147 165 8 8 14 13 8 Unusual Expense Non Operating Income/Expense Interest Expense Interest Expense Growth Gross Interest Expense Interest Capitalized Pretax Income Pretax Income Growth Income Tax Income Tax - Current Domestic Income Tax - Current Foreign Income Tax-Deferred Domestic 1,216 1,097 279 209 623 123.30% 10.85% 76.08% 33.49% 457 420 222 111 81 155 43 10 4 5 32 270 377 212 107 76 677 759 401 168 128 Consolidated Net Income 677 401 168 128 759 Net Income 12.11% 68,83% 138.69% 31.25% 677 401 168 128 759 Net Income Growth Net Income After Extraordinaries Net Income Available to Common 128 677 168 401 759 2.22 0.40 1.98 0.52 1.19 66.39% 12.12% 128.85% 30.62% 283 282 327 295 315 EPS (Basic) EPS (Basic Growth Bask Shares Outstanding EPS (Diluted EPS (Diluted) Growth Diluted Shares Outstanding 0.52 0.40 2.22 1.98 1.19 29.46% 12.60% 130.59% 66.19% 343 344 342 343 345 719 624 EBITDA 1,696 1,666 858 EBITDA Growth 1.80% 94.17% 15.22% 19.33% 429 366 EBIT 1,303 1,321 538 Source: JetBlue Annual Report 2016, EXHIBIT 5 Balance Sheet of JetBlue 2012 2013 2014 731 2015 627 2016 708 182 876 225 971 433 341 318 549 402 367 558 538 -14.23% 10.84% 23.73% 12.92% 9.03% 8.53% 10.34% 10.24% 10.12% 129 106 Fiscal year is January-December. All values USD millions. Cash & Short-Term Investments Cash Only Short-Term Investments Cash & Short-Term Investments Growth Cash & ST Investments / Total Assets Total Accounts Receivable Accounts Receivables, Net Accounts Receivables, Gross Bad Debt Doubtful Accounts Acounts Receivable Growth Accounts Receivable Turnover 136 172 136 129 106 136 172 136 135 113 142 177 142 16) (5) 16) 21.70% 0.00% (6) 5.43% 42.77 26.47% 38.56 42.18 47.00 47.18 48 36 44 46 Inventories 47 48 46 Raw Materials 252 227 377 317 310 126 119 135 172 Other Current Assets Prepaid Expenses Miscellaneous Current Assets Total Current Assets 377 175 108 145 126 1,567 1,373 1.200 1,056 1,100 7.271 6,652 6,072 5,656 5,343 9,624 8.679 7,817 6,652 Net Property. Plant & Equipment Property. Plant & Equipment - Gross Machinery & Equipment Construction in Progress Other Property. Plant & Equipment 7.208 5.959 8,091 7.250 6,440 5,506 561 561 561 561 561 972 868 816 688 585 2.353 2.027 1,745 1,552 1,309 1,823 1,573 1,354 1.185 995 Accumulated Depreciation Machinery & Equipment Construction in Progress Other Property, Plant & Equipment Total Investments and Advances 185 161 139 116 93 345 293 252 251 221 152 112 121 171 187 152 112 121 171 187 97 93 73 Other Long-Term Investments Intangible Assets Other Assets Tangible Other Assets 70 129 400 430 373 397 400 311 430 373 397 Total Assets 9,487 311 8,660 7.839 7,350 Assets - Total - Growth 9.55% 10.47% 7,070 6,65% 3.96% Fiscal year is January-December All values USD millions. 2016 2015 2013 189 2014 265 448 2012 394 189 448 469 469 265 394 242 205 180 ST Debt & Current Portion LT Debt Current Portion of Long-Term Debt Accounts Payable Accounts Payable Growth Other Current Liabilities Accrued Payroll Miscellaneous Current Liabilities 18.05% 846 -1.44% 1.622 208 15,56% 1,463 203 1,792 -78.72% 1.225 368 342 302 171 172 1,320 1,260 1,054 1,450 2,223 196 2,275 1,936 1,874 1,608 Total Current Liabilities Current Ratio 0.70 0.60 0.62 0.68 0.56 0.54 Quick Ratio 0.68 0.58 0.60 0.66 0.45 0.39 Cash Ratio 0.37 0.33 0.44 1,652 1,867 2,455 2,590 2.457 1,528 1,727 2,300 2.457 2.493 2,493 1,528 1,727 2,300 2,457 Long-Term Debt Long-Term Debt excl. Capitalized Leases Non-Convertible Debt Capitalized Lease Obligations Deferred Taxes Deferred Taxes - Credit Other Liabilities 124 140 155 97 1,509 1.218 832 605 481 1,509 1.218 832 605 481 636 90 90 87 147 Other Liabilities (excl. Deferred Income) 90 90 87 147 636 Total Liabilities 5,474 5,450 5,216 5.182 5,310 67.74% Total Liabilities/Total Assets 57.70% 62.93% 70.97% 73.30 4,013 3.210 2,529 2,134 1.888 4 4 4 3 3 2,050 1,896 1,711 1,573 1,495 2.446 1,679 1,002 601 433 Common Equity (Totan Common Stock Par/Carry Value Additional Paid-In Capital/Capital Surplus Retained Earnings Other Appropriated Reserves Treasury Stock Common Equity Total Assets Total Shareholders' Equity Total Shareholders' Equity / Total Assets 13 (63) 18 (3) (366) (500) (125) (43) (35 42.30% 37.07% 32.26% 26.70 29.03% 2,134 4,013 3.210 2,529 1,885 42.30% 37.07% 32.26% 29.03% 26.7C Total Equity 4,013 3,210 2,529 2,134 7,350 1,888 7,070 Labtes & Shareholders' Equity 9,487 8,660 7.839 Report 2016 CASES CASE 28 JETBLUE AIRWAYS CORPORATION: GETTING OVER THE BLUES"? To meet the challenges, new CEO Robin Hayes orches- In 2017 JetBlue faced challenges that included rising fuel prices, troubling technical disruptions, and declining qual trated various initiatives that the company planned to take ity of the flying experience. Since the beginning of 2016, through 2017. Those initiatives included wider fare options enhanced Mint services, cabin restyling, new lines of their earnings about 18 percent during the second quarter JetBlue credit cards, and partnerships with other airlines? The founding CEO of JetBlue, David Neeleman, had of 2016.' but the company experienced technical issues that caused booking problems and resulted in delays, as been ousted by the board of directors after a notorious event well as bad publicity. In order to cope with the likelihood when an ice storm severely disrupted the airline's opera- of a rise in future fuel prices, JetBlue undertook massive tions. In 2007, Dave Barger, an employee since the incep cost reductions by investing in cabin restyling, for instance, tion of JetBlue in 1998, became the second CEO of the adding more seats to Jet Blue's A320 airplanes. However, company. Ultimately Barger was pressured to step down the shrinking legroom that accompanied the cabin restylamid constantly depressed stock prices. In February 2015, ing was despised by passengers, which posed a problem for Robin Hayes took charge of the company as its third chief an airline that had once offered customers a captivating executive. Hayes was the executive vice president of British (as opposed to a captive) flying experience. Airways for the Americas before joining JetBlue in August 2008. Having worked for about 25 years and having extensive experience in the airline industry, Hayes was considered an *This case study was prepared by Professor Naga Lakshmi Damaraju of optimal choice to become the third chief executive of JetBlue. the Indian School of Business, Professor Alan B. Eisner at Pace University, In promoting Robin Hayes to be the airline's new CEO, Professor Gregory G. De at the University of Texas at Dallas, and graduate JetBlue's board signaled its readiness to focus on investor student Sand Nair of Pace University. The purpose of the case is to stimulate friendly changes. With news of his selection, the share price class discussion rather than to illustrate effective or ineffective handling of a business station. The authors thank Ms. Parul Agarwal, Indian School immediately soared by 5 percent. But JetBlue loyalists who of Business, for her research assistance and Professor Michael Ouff at the loved the company for its customers first policies were getting University of Texas at Dallas for his valuable comments on an earlier version of more and more uncomfortable (see Exhibit 1). Would JetBlue this case. Copyright 2017 Damarju, Eisner, and Dess. soar into clearer skies, or would it sink into the "bluesain! EXHIBIT 1 JetBlue's Stock Performance versus S&P 500 JBLU 30.00 Open 20.63 Close 20.82 25.00 Low 20.50 High 20.86 Vol 2.85M %Chg 335.56% 2082 15.00 10.09 5.00 Jan 713 Jan 6'14 Jan 5 '15 Jan 4'16 Jan 2017 C209 CAUFTLINE low-cost airlines created a very unprofitable environment A320s had 162 seats, compared to 132 seats in the Boeing for traditional networks. Since 2011 most of the traditional network, hub-and-spoke airlines have filled for bankruptcy to maintain and more fuel efficient. Since all of JetBlues or under one financial restructuring, mergers, or consolida- Lions with these restructurings, many of them have been able to significantly reduce labor costs, restructure dcbi. and generally in a more competitive cost structure. This has enabled the major airlines to provide innovative offer route networks. The gap between low-cost airlines and tradi tional network airlines has diminished drastically JetBlue: The Humble Beginnings and the Born in Sao Paulo, Brazil, and brought up in Salt Lake City based Morris Air, a charter operation, in 1984. Morris Air was closely modeled after Southwest Airlines, the legend ary discount airline. Neeleman considered Herb Kelleher, While following the Southwest model, Nocleman brought his own innovations into the business. He pioneered the use of at-home reservation agents, routing calls to agents homes to save money on office rent and infrastructure expense. He also developed the first electronic ticketing system in the airline industry. Impressed by Morris's low costs and high revenue, Southwest bought the company for $129 million in 1992. Neeleman became an executive vice president of The US airline industry consists of three primary seg. Great Rise Ines Major U.S. airlines, as defined by the Department David Neeleman, along with June Morris, launched Utah significantly, leading to a reduction in traffic and revenue achieve this objective, the company originally operated a ines similar to those of low cost airlines while still maintain constantly updated at headquarters. As a result, pilots in their alliances, frequenter programs, and expansive could quickly calculate the weight, balance, and takeoff per The U.S. Airline Industry sents: major airlines, regional airlines, and low-fare air Transportation, are those with annual revenues of over $1 billion. Most major airlines utilize the hub-and-spoke route system. In this system, the operations are concen trated in a limited number of hub cities, while other des Southwest's founder, his idol, inations are served by providing one-stop or connecting service through the hub. Scheduled flights serve most large cities within the United States and abroad and also serve numerous smaller cities. Regional airlines typically operate smaller aircraft on lower volume routes than do major airlines. They typically enter into relationships with major airlines and carry their passengers on the spoke-that is, between a hub or larger city and a smaller city. Unlike the low-fare Southwest. However, he could not adjust to Southwest's pace airlines, the regional airlines do not have an independent of doing things. By 1994, he was at odds with top executives route system. and he left after signing a five-year noncompete agreement. Deregulation of the U.S. airline industry in 1978 ush After the noncompete agreement with Southwest ered in competition in the previously protected industry. Airlines ended in 1999. Necleman launched his own airline. Several low-cost, low-fare operators entered the competi- He raised about $130 million of capital in two weeks. With tive landscape that Southwest had pioneered in 1971. The such strong support from venture capitalists, JetBlue began low-fare airlines operate from point to point with their as the highest-funded start-up airline in U.S. aviation history. own route systems. The target segment of low-fare airlines JetBlue commenced operations in August 2000, with John is fare conscious leisure and business travelers who might F. Kennedy International Airport (JFK) as its primary base otherwise use alternative forms of transportation or not of operations. In 2001, JetBlue extended its operations to the travel at all. Low-fare airlines have stimulated demand in West Coast with its base at Long Beach Municipal Airport, this segment and been successful in weaning business trav- which served the Los Angeles area. In 2002, the company elers from the major airlines. Southwest is the outstanding went public and was listed on NASDAQ as JBLU. JetBlue's example: however, Southwest has become a major airline, stock offering was one of the hottest IPOs of the year.' having crossed the $1 billion mark in 1990.6 JetBlue had been established with the goal of being a The main bases of competition in the airline industry leading low-fare passenger airtime that offered customers a are fare pricing, customer service, routes, flight schedules, differentiated product and high-quality customer service on types of aircraft, safety record and reputation, codesharing point-to-point routes. JetBlue had a geographically divers relationships, in-flight entertainment systems, and frequent fied flight schedule that included both short-haul and long- Nier programs. The sconomic downturn in the late 1990s haul routes. The mission of the company, according to and the terrorist attacks on the World Trade Center and Nocleman, was "to bring humanity back to air travel." To the Pentagon on September 11, 2001, severely affected the airline industry and changed the competitive relation: kets and large metropolitan areas that had high average fares, stimulate demand, the airline focused on underserved mar ships among carriers. The demand for air travel dropped JetBlue was committed to keeping its costs low. To Security concerns, security to increaseis able concerns singlotype aircraft fleet comprising Airbus A320 planerne Increased. Lower fares and the increased capacity of the opposed to the more popular but costly Boeing 737. The 737. According to JetBlue, the A320 was less expensive planes were new, the maintenance costs were also lower. In addition, the single type of aircraft kept training costs low and increased personnel utilization. JetBlue was the first 10 introduce the "paperless cockpit." in which pilots, equipped with laptops, had ready access to fight manuals that were formance of the aircraft instead of having to download and print the manuals to make the calculations. The paperless CASE 28 - JETBLUE AWAY 200 was everywhere. For example, there were no paper tickets introduced Embraer jets to its fleet 16 cockpit ensured faster takeoffs by reducing paperwork and give the airline a new boost. In July 2007, it became the higher aircraft utilization. No meals were served on the messages from wireless handheld devices, a technology planes, and pilots even had to be ready. If need be, to do developed through its Live TV LLC subsidiary. Later, the airline's choice of less congested airports. Innovation Southwest. Virgin America, and Skybus Airlines. It also cleanup work on the plane to minimize the time the aircraft was on the ground. Turnaround time was also reduced by thus helped the airline achieve quicker turnarounds and first US carrier to let passengers send free email and text in September 2007. it expanded to smaller cities that did not have sufficient demand for the larger planes flown by In 2007, JetBlue had its first full-year profit in three years as an increase in traffic and operational improvements to lose and no mileage statements to mail to frequent fliers. With friendly, customer service-oriented employees, new aircraf: roomy leather seats wathe 196 Chelse helped compensate for skyrocketing fuel costs. However, free LiveTV, 100 channels of free XM satellite radio, and movie channel offerings from FOXInflight: and more leg fuel prices. JetBlue's profits tanked again in 2008, and the Toom (one row of seats was removed to create ad